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U.S. tariff hike hits 10,800 mid-sized exporters in Brazil

Textile and furniture companies without scale face growing risks of layoffs, revenue losses

 

 

 

08/05/2025

Of the 74,000 mid-sized companies currently operating in Brazil, around 10,800 (14.6%) export goods and are now exposed to the market upheaval triggered by the U.S. tariff hike, according to estimates from Fundação Dom Cabral (FDC). Roughly 80% of these exporters are part of the manufacturing sector—one of the segments hardest hit by the measures enacted by Donald Trump.

Professor Paulo Roberto Feldmann of the University of São Paulo’s School of Economics, Business Administration, Accounting and Actuarial Science (FEA-USP) sees three distinct scenarios among the sectors most vulnerable to the tariff shock. In agribusiness export chains—such as coffee, cocoa, meat, and fish—large, efficient groups can redirect shipments to Asia or Europe and, if needed, shift part of their output to the domestic market, helping stabilize prices. However, in sectors like textiles and furniture, which are dominated by mid-sized firms lacking scale or export consortia, the tariffs leave them cornered, with increasing risks of layoffs and revenue losses.

Machinery falls somewhere in between, according to Mr. Feldmann. Manufacturers of agricultural equipment benefit from strong domestic demand and advanced technology, while producers of industrial machinery are losing ground in a shrinking manufacturing base. Mr. Feldmann warns that without cost-cutting, regulatory streamlining, and support for export consortia, the tariff hike could accelerate Brazil’s deindustrialization and deter investment.

FDC professor Eduardo Menicucci modeled the impact of the tariff hike using a real case from Pará: an açaí producer that earns a third of its revenue from U.S. sales. “The increase in the final price for American consumers would be 36%, and that can’t be fully passed on by the importer,” he pointed out. “This creates a very narrow margin for maneuvering, especially with limited domestic demand and no capacity to store the entire output in cold storage.”

Some sectors may be able to build inventory, Mr. Menicucci noted, while others—like furniture—will likely be forced to shut down production lines for the export market. Nearly one-third of Brazil’s furniture and mattress exports and 40% of exports of furniture-related raw materials, inputs, and technology go to U.S. consumers, according to the Brazilian Furniture Industry Association (ABIMOVEL). Some companies are already seeing order cancellations, shipment suspensions, production cuts, and revenue losses tied directly to the Trump administration’s tariff hike.

One example is Móveis Serraltense, a furniture company based in São Bento do Sul, which granted two weeks of collective leave to its 140 employees in July. In 2024, 80% of the company’s production went to the United States; in the first half of 2025, that figure dropped to just 30%. “For the next three months, we’re projecting production idle time of 40% to 50%,” says CEO Daniel Lutz.

“We plan to retain all jobs, perhaps by reducing the workweek by one day without cutting wages, to save on electricity and inputs,” Mr. Lutz added. Serraltense is exploring new markets in Europe and Latin America, but the CEO warns that diversification will take time.

In the furniture hub of Arapongas, Paraná, leather upholstery manufacturers are also feeling the pressure. At Toro Bianco, a family-run business with 100 employees, scheduled shipments for August were canceled, said director Marcela Carandina.

In Nova Prata, Rio Grande do Sul, nearly all of Artemobili’s production is exported to the U.S. Due to a wave of order cancellations, the company put its 360 employees on paid furloughs. “This doesn’t just create uncertainty for our company, but for the entire community, where hundreds of families rely on the furniture sector to make a living,” said CEO Gabriel João Cherubini.

The Santa Catarina furniture cluster—the country’s largest exporter of furniture—is heavily dependent on U.S. clients. Its 398 companies, located in São Bento do Sul, Campo Alegre, and Rio Negrinho, employ around 7,000 people and generated $123.4 million in exports last year, representing 14% of Brazil’s total furniture exports. The U.S. accounted for 62% of that total ($77.1 million).

“The new tariffs erode the competitiveness of Brazilian furniture, undermining a bilateral trade relationship that our companies have built through efficiency, innovation, and sustainability,” said Luiz Carlos Pimentel, president of the São Bento do Sul Furniture Industry Association (Sindusmobil). He calls for the continuation and strengthening of bilateral trade negotiations and stresses the urgent need for measures to support Brazil’s export-oriented industries.

The tariff hike comes at a fragile time for mid-sized firms, as highlighted by early findings from FDC’s annual Market Radar study, shared in advance with Valor. Between 2021 and 2024, the number of mid-sized companies entering court-supervised reorganization more than doubled, from 197 to 416. The study, based on data from 10,400 mid-sized companies, shows that these firms saw a 10% drop in net income in 2024 compared to 2022.

“If the tariffs are not eased, some of these companies will be in very precarious situations, especially those that are already in debt,” Mr. Menicucci said. “For those that are already putting workers on paid furloughs, the next step will likely be layoffs, and I don’t know of any mid-sized firm with the financial reserves to handle that.”

Structural issues like lack of planning and limited access to capital continue to hamper mid-sized businesses in Brazil’s still-low-internationalization economy. An FDC study conducted in 2023 found that only 11% of mid-sized companies had management maturity levels considered excellent. “That points to a major gap, but also a huge opportunity,” said professor and researcher Diego Marconatto. He noted that just 13% of Brazil’s mid-sized companies have subsidiaries abroad, even though 85% operate under a B2B model.

The immediate impact of the tariff hike may be minimal for firms without an international presence, but over the medium term, ripple effects will likely hit suppliers to major exporters. “In footwear, for instance, the supply chain is very dynamic and competition is fierce, which means international competitors can quickly replace Brazilian products,” Mr. Marconatto said. “We’re likely to see layoffs in that and other sectors.”

*By Dauro Veras  — Florianópolis

Source: Valor International

https://valorinternational.globo.com/

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U.S. tariff hike could ease Brazil’s inflation outlook for 2025

Economists see inflation closer to 5% than 5.5%; Treasury yields fall

04/04/2025

The sweeping global tariffs announced on Wednesday (2) by U.S. President Donald Trump—on what he dubbed “Liberation Day”—may create downward pressure on Brazil’s inflation outlook for this year. Economists now see inflation numbers hovering around 5%, rather than above 5.5%. The median projection in the Central Bank’s Focus survey currently points to an IPCA official inflation rate of 5.65% in 2025 and 4.5% in 2026.

Inflation expectations embedded in NTN-B bonds (Brazilian Treasury notes indexed to the IPCA) due in May 2025 fell to 5.64% on Thursday, from 5.96% the day before, 6.48% five days ago, and 9.83% a month ago, according to Warren Rena. For NTN-Bs maturing in August 2026, implied inflation fell to 4.95%, down from 5.27%, 5.42%, and 6.26% over the same periods.

Despite the downward bias, projections remain above the upper limit of the inflation target, set at 4.5%. Brazil was less affected by the newly announced tariffs, as its products will face a 10% surcharge—the minimum rate imposed by the Trump administration.

If the situation remains as it is, the measure could result in higher inflation in the U.S., slower growth there, and a broader global economic slowdown, said Andréa Angelo, chief inflation strategist at Warren. These effects, she noted, could weaken the U.S. dollar, easing inflationary pressure on goods in Brazil.

Ms. Angelo pointed out that when the real strengthens against the dollar, the pass-through to consumer prices tends to be smaller than when the Brazilian currency depreciates. Still, an exchange rate of R$5.50 to the dollar, for example, could reduce Brazil’s goods inflation and lead to a 0.27 percentage point drop in the IPCA, bringing the projection to 5.2%. On Thursday, the dollar’s exchange rate closed at R$5.62. “There’s also the possibility that Asia will face a glut of goods, since it won’t be exporting as much to the U.S.,” she added.

Inflation risks

Mirella Hirakawa, head of research at Buysidebrazil, said that inflation risks for 2025, which had been tilted to the upside, now appear more evenly balanced. The consultancy had already projected a lower inflation rate for 2025 than the market consensus, with a year-end IPCA of 5.2%. Last week, the forecast was revised upward to 5.4%, and the 2026 projection increased from 4.4% to 4.6%.

“I think that for 2025, we and the market will likely meet halfway—somewhere between 5.4% and 5.5%. But for 2026, the projections shouldn’t change much,” Ms. Hirakawa said. She noted that the estimates do not yet factor in the impact of private payroll-deductible credit in 2025 or the income tax reform scheduled for 2026.

She said Thursday’s drop in Brazil’s exchange and interest rate markets reflects the relatively limited impact of the U.S. tariffs on Brazil, combined with a higher risk of recession in the U.S. than of global price pressure. “But we’re talking about a potential new world order, with a high degree of uncertainty around the new map of trade agreements.”

She sees two possible scenarios: one where all countries reduce tariffs and economies become more open—including the U.S.; and another where nations retaliate against the U.S. and forge new trade deals among themselves, with the U.S. left out.

“In my view, regardless of the scenario, the U.S. will feel the inflationary effects before any hard data on activity. Initially, uncertainty will play a larger role in the slowdown, but the most significant impact would come in the second half of the year, possibly reinforcing fears of a recession—which could become a self-fulfilling prophecy,” she said.

The Trump administration’s tariff hike could trigger responses from other trade partners, potentially sparking a trade war that would hurt the global economy. Still, Brazil stands to lose less than other countries, said Iana Ferrão, economist at BTG Pactual. The extent of that loss, however, will depend on how much the global economy deteriorates, she noted.

‘Impoverishment Day’

Sergio Vale, chief economist at MB Associados, called “Liberation Day” an “Impoverishment Day,” saying it would “shackle the American population to much higher prices.” For Brazil, he said, the announcement strengthened the country’s growing alignment with China and bolstered commodity trade chains. The relatively mild tariff rate imposed on Brazil helped strengthen the real through expectations of an improved trade balance, he added.

“The idea of a stronger trade balance with China and other countries, combined with accelerated progress on trade deals with Europe, for example, should help keep the exchange rate lower in the coming months. As a result, the real is likely to remain around R$5.70 throughout 2025,” Mr. Vale said.

This stronger exchange rate supports MB’s IPCA estimate of 5.1% for 2025 and helps push inflation away—for now—from levels above 5.5%, he said. “Still, both this year and next, when we expect 4.5%, inflation is likely to end President Lula’s term near the upper limit of the target range.”

The combination of a stronger real, moderate global slowdown risk, and a possible increase in oil supply in May, as announced by OPEC+, led Banco Pine to lower its 2025 IPCA forecast from 5.25% to 5.1%. “Given our outlook for the domestic and global economy, we feel relatively comfortable with this projection,” said Cristiano Oliveira, head of economic research.

XP expects some recovery in commodity prices and the U.S. Dollar Index (DXY) in the coming weeks, despite the high level of uncertainty. It also does not anticipate a near-term interest rate cut from the Federal Reserve. As a result, XP maintained its exchange rate forecast at R$6 to the dollar at the end of 2025 and R$6.20 in 2026. Still, the brokerage acknowledged that the probability of stronger Latin American currencies—beneficial for inflation and monetary policy—has increased.

XP also lowered its 2024 goods inflation forecast from 4.7% to 4.3%, driven by first-quarter currency gains. However, it now assumes a yellow flag for electricity tariffs in December, with an additional surcharge. This kept its 2025 IPCA forecast at 6%. For 2026, the forecast rose from 4.5% to 4.7% due to the expected impact of income tax reform.

  • By Anaïs Fernandes — São Paulo
  • Source: Valor International
  • https://valorinternational.globo.com/
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